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Exam 18: Financial Analysis: the Big Picture

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Question 1

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When performing vertical analysis, the base amount for administrative expense is generally

A) administrative expense in a previous year.
B) net sales.
C) gross profit.
D) fixed assets.

E) A) and B)
F) B) and C)

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Question 2

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Meaningful analysis of financial statements will include either horizontal or vertical analysis, but not both.

A) True
B) False

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Question 3

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The order of presentation of nontypical items that may appear on the income statement is

The ratio that uses weighted average common shares outstanding in the denominator is the

The following information pertains to Soho Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. What is the receivables turnover for Soho?

Selected financial information for Bradley Corporation is presented below. Instructions Prepare a schedule showing a horizontal analysis for 2011 using 2010 as the base year.

A loss on the write down of obsolete inventory should be reported as

Calculating financial ratios is a financial reporting requirement under generally accepted accounting principles.

Milton Company has income from continuing operations of $480,000 for the year ended December 31, 2010. It also has the following items (before considering income taxes): (1) An extraordinary fire loss of $150,000. (2) A gain of $90,000 on the discontinuance of a major segment. (3) A correction of an error in last year's financial statement that resulted in a $70,000 overstatement of 2009 net income. Assume all items are subject to income taxes at a 30% tax rate. Instructions (a) Prepare an income statement, beginning with income from continuing operations. (b) Indicate the statement presentation of any item not included in (a) above.

Vertical analysis is also called

If Parthenon Company had net income of $540,000 in 2011 and it experienced a 20% increase in net income over 2010, what was its 2010 net income?

Horizontal analysis (trend analysis) percentages for Watson Company's sales, cost of goods sold, and expenses are listed here. Instructions Explain whether Watson's net income increased, decreased, or remained unchanged over the 3-year period.

In vertical analysis, the base amount in an income statement is usually net sales.

A liquidity ratio measures the

In common size analysis,

The following information pertains to Soho Company. Assume that all balance sheet amounts represent both average and ending balance figures. Assume that all sales were on credit. What is the profit margin for Soho?

Selected financial statement data for Holmes Company are presented below. Total assets at the beginning of the year were $750,000; total common stockholders' equity was $550,000 at the beginning of the period. Instructions Compute each of the following: (a) Asset turnover (b) Profit margin (c) Return on assets (d) Return on common stockholders' equity

The acid-test ratio is also known as the

Profitability ratios are frequently used as a basis for evaluating management's operating effectiveness.

The ratios that are used to determine a company's short-term debt paying ability are